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Glossary of Insurance Terms

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illness perils
A classification used by health insurance underwriters to evaluate the type and degree of peril represented by a particular occupation. Illness perils include exposure to dust, poisons, and extreme temperatures. See also accident perils.

immediate annuity
An annuity under which income payments begin one period after the annuity is purchased.

immediate participation guarantee (IPG) contract
Similar to a deposit administration contract except that an IPG contract does not fully protect the plan sponsor against investment loss, nor does the IPG contract guarantee minimum investment returns. See also deposit administration contract.

impairment
Any aspect of the health, occupation, activities, or life-style of a proposed insured that could increase his or her expected mortality or morbidity.

impairment rider
An attachment to a health insurance policy that excludes or limits coverage for a specific health impairment. Also called an exclusion rider or impairment waiver.

implied authority
The authority that a principal intends an agent to have and that arises incidentally from an express grant of authority. See agent and principal. Compare to apparent authority and express authority.

incentive coinsurance provisions
Provisions included in some dental policies that promote regular dental care by specifying that insurers will pay a higher percentage of dental expenses if the insured receives regular dental examinations.

incident of ownership
Any policy right including the right to (1) change the beneficiary, (2) cancel or surrender the policy, (3) assign the policy, (4) obtain a policy loan, or (5) use the policy as collateral for a loan.

income protection insurance policy
A type of disability income policy which specifies that an insured is disabled if that person suffers an income loss caused by a disability.

income replacement benefit
See recovery benefit.

income replacement ratio
The percentage of preretirement income that a retiree would need to receive after retirement in order to have a postretirement standard of living equivalent to his or her preretirement standard of living. This ratio is generally less than 100 percent, because some of an individual's expenses (i.e., taxes, commuting costs, clothing expenditures, savings needs) decrease after retirement. Also known as the replacement ratio.

incontestable clause
Life insurance policy clause that provides a time limit (usually two years) on the insurer's right to dispute a policy's validity based on material misstatements made in the application. See also contestable period.

increasing term insurance
A type of term insurance in which the death benefit of the policy increases during the term of coverage. The death benefit may increase at stated intervals by some specified amount or percentage, or it may increase according to increases in the cost of living.

indemnity
See contract of indemnity.

independent life brokers
Licensed brokers who operate independently and specialize in selling particular types of products or in meeting the business coverage or estate planning needs of certain target markets.

independent marketing organization (IMO)
A non-company affiliated organization that contracts with an insurance company to perform distribution and other marketing functions for one or more of the company's products or product lines.

independent property/casualty (P/C) brokers
Independent, multiple-line agents or agencies that are primarily engaged in the distribution of property/casualty products and that make up what is commonly known in the property/casualty insurance industry as the independent agency system or the American Agency System.

indeterminate premium life insurance
A type of nonparticipating whole life insurance that specifies both a maximum potential premium rate and a lower premium rate. The lower rate is paid by the policyowner for a specified period (from 1 to 10 years) immediately after the policy is purchased. Later, the premium rate may fluctuate according to the investment earnings of the insurance company, but the premium rate will never be larger than the maximum premium rate. Also called flexible premium life insurance, nonguaranteed premium life insurance, and variable premium life insurance.

indexation
In pension planning, the adjustment of postretirement benefits to compensate for the effects of inflation. Benefits are generally indexed to increase in accordance with an increase in the level of a price index such as the Consumer Price Index (CPI). See also cost-of-living adjustment (COLA).

indexed life insurance
A whole life plan of insurance that provides for the death benefit of the policy and, consequently, the premium rate to increase automatically every year in accordance with any increase in the Consumer Price Index (CPI).

individual account plan
A pension plan funded according to a defined contribution formula. Each participant's benefits are based on the amount contained in that individual's account. See defined contribution formula and defined contribution pension plan.

individual employer groups
A group insurance market segment composed of single employers providing coverage for employees through a policy--the master contract--issued to the employer.

individual fraud
A type of medical insurance fraud committed by individuals on their medical expense claims in order to obtain benefits in excess of their medical expenses. Contrast with provider fraud.

individual funding methods
Pension plan funding methods in which the amount of contributions necessary to fund a plan is determined by first separately calculating the contributions for each of the plan's participants and then adding these amounts to arrive at the total required contribution for the plan. Contrast with aggregate funding methods.

individual insurance
Insurance that is issued to an individual person, as contrasted with group insurance. Also called ordinary insurance. See also ordinary life insurance.

individual practice association (IPA)
A means of organizing a health maintenance organization (HMO) in which the participating physicians maintain their own separate offices. Such physicians usually treat both private patients and HMO members. See also group practice model (GPM).

individual retirement account (IRA)
In the United States, a tax-sheltered savings plan that allows some citizens to make pre-tax contributions to an approved account. The contributions and investment earnings are taxable as income only when paid out. Investors can establish IRAs through a number of financial institutions, including insurance companies. See also Keogh Act and simplified employee pension (SEP).

industrial insurance
A form of life insurance which today accounts for a small percentage of the business sold through the home service distribution system but a considerable percentage of the insurance in force. It is characterized by (a) death benefits of $2,000 or less, (b) a weekly, biweekly, or monthly premium payment schedule, (c) the collection of premiums at the policyowner's residence by an agent, and (d) minimum underwriting requirements. See also home service distribution system.

in-house brokerage agency
A department established by an exclusive-agent company and staffed by company-employed brokerage sales people whose primary function is to solicit distribution agreements with other companies offering products that the exclusive-agent company itself does not manufacture. The company's agents can then broker business with those companies through the in-house brokerage agency.

initial deductible
See deductible.

initial premium
The first premium payable for an insurance contract.

initial reserve
The reserve on a policy at the beginning of any given policy year. The initial reserve includes the net annual premium then due.

inside build-up
See cash value.

insolvency clause
In the United States, a clause contained in most reinsurance contracts and required by most states which specifies that, if the ceding company becomes insolvent, the reinsurer must pay the ceding company or its liquidator all reinsurance which comes payable, without reduction, even if the ceding company or its liquidator has failed to pay all or a portion of any claim.

inspection receipt
A receipt given to the applicant when the applicant receives a policy for inspection. This inspection receipt states that the insurance is not in effect and that there has been no delivery of the policy in the legal sense.

inspection report
A report made by a consumer reporting agency concerning a proposed insured's lifestyle, occupation, and economic standing. An inspection report is considered an investigative consumer report, as defined by the Fair Credit Reporting Act. See also investigative consumer report.

installation
The term used to include all the activities from the time a prospect decides to purchase a group insurance policy to the time the master contract and its individual certificates are issued.

installment certificate
A certificate issued to the beneficiary of a life insurance policy that specifies the amount of each benefit payment and/or the period during which benefit payments will be made under a settlement option. An installment certificate also specifies whether a beneficiary is allowed to withdraw all or part of the funds during the payment period. See also settlement agreement and settlement options.

installment refund option
A form of life income option with refund which specifies that any proceeds remaining after the death of the beneficiary will be paid in installments to the contingent payee. Contrast with the cash refund option.

insurability provision
An insurance provision stipulating that, for a policy to become effective, the insured must still be insurable at the time of policy delivery according to the underwriting rules and practices of the company.

insurability statement
A questionnaire that an insurer may ask an applicant to complete when a considerable amount of time has elapsed between the time the application is received and the time the policy is actually issued. The purpose of the insurability statement is to determine if any insurability factors have changed since the original application was completed. Insurability statements help protect insurers from post-issue antiselection. See also antiselection.

insurability type temporary insurance agreement
An agreement issued in conjunction with a conditional premium receipt that provides temporary life insurance coverage as of the date specified in the agreement on the condition that the proposed insured is insurable. See also conditional premium receipts and temporary insurance agreements. Compare to approval type temporary insurance agreement.

insurable interest
A condition in which the person applying for an insurance policy and the person who is to receive the policy benefit will suffer an emotional or financial loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is void from the start.

insurance
A system of protection against loss in which a number of individuals agree to pay certain sums of money, called premiums, to create a pool of money which will guarantee that the individuals will be compensated for losses caused by events such as fire, accident, illness, or death.

Insurance Act
In Canada, a general statute that contains most of the insurance law of a common law province and that regulates the conduct of insurers and insurance agents within the province.

insurance agent
A representative of an insurance company who sells insurance. An insurance agent locates prospective insurance customers, determines the insurance needs of each customer, and assists the customer in applying for insurance. Typically, an insurance agent will deliver the policy when the application is approved, will collect the initial premium, and will provide customer service to policyowners. Also called an agent, a field underwriter, or a life underwriter. See also broker, detached agent, general agent (GA), personal producing general agent (PPGA), and soliciting agent.

Insurance Regulatory Information System (IRIS)
In the United States, an information system developed by the NAIC to help state regulatory agencies assess the financial stability of individual insurance companies by means of a series of ratios derived from the companies' statutory annual statements.

insurance trust
A common form of trust, created during the lifetime of the person who creates the trust, that is funded by insurance policies on the life of the trust's creator or by the proceeds of such policies.

insured
(1) In the United States and Quebec, a person whose life is insured by an insurance policy (for individual life insurance policies, called the life insured in the rest of Canada). (2) In the common law provinces of Canada, the owner of an individual life insurance policy (called the policyowner in the United States and the policyholder or owner in Quebec). (For the purposes of this glossary, we have used this term as it is used in the United States and Quebec, except in the definitions of purely Canadian terms, in which cases we have made it clear that we are using the term as it is used in Canada.)

insured funding
A method of funding a pension plan in which the plan sponsor purchases annuity or life insurance contracts on behalf of each participant. The insurance company guarantees a certain benefit to each retiree. See also group deferred annuity.

insurer
The party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company.

insurer-administered group insurance plan
A group insurance plan for which the insurer performs the administrative work. This administrative work includes computing the amounts of the premiums due and mailing premium notices to the policyholder, usually monthly.

integrated deductible
A type of deductible included in some major medical expense plans that can be satisfied by amounts paid by the insured under basic medical expense plans. Contrast with corridor deductible.

integrated dental plan
A dental plan which is part of a major medical policy.

integrated pension plan
A private pension plan in which the benefits or contributions are coordinated with the benefits or contributions of a government-sponsored pension plan.

interest-adjusted cost
One figure calculated under the interest-adjusted net cost (IANC) method of comparing the costs of life insurance policies. The interest-adjusted cost represents the average annual cost of a policy and is calculated using premiums, dividends, and cash values. Also called the surrender cost index (SCI).

interest-adjusted net cost (IANC) method
A method of comparing the costs of life insurance policies. The IANC method weights dividends and cash values according to how far into the future the various amounts are payable. Under this method, three amounts are calculated: the interest-adjusted cost, the interest-adjusted payment, and the equivalent level annual dividend. Also known as the surrender cost index (SCI) method. See also cost comparison methods.

interest-adjusted payment
One figure calculated under the interest-adjusted net cost method of comparing the costs of life insurance policies. The interest-adjusted payment represents the average annual payment for the policy and is calculated using only premiums and dividends. Also called the net payment cost index.

interest option
A life insurance settlement option under which the proceeds of a policy are temporarily left on deposit with the insurer and the money earned on those proceeds is paid annually, semiannually, quarterly, or monthly to the beneficiary or other payee.

interest-sensitive insurance
See investment-sensitive insurance.

interest-sensitive whole life insurance
See current assumption whole life insurance.

internal replacement
The surrender of one life insurance policy in order to buy another insurance policy that is issued by the same insurer.

interpleader
A method for settling a claim under which the insurer pays the policy proceeds to a court, stating that the company cannot determine the correct party to whom the proceeds should be paid, and asks the court to decide the proper recipient.

investigative consumer report
As defined by the Fair Credit Reporting Act, a consumer report that uses interviews with persons who are associated with, or who have knowledge of, the consumer in question in order to solicit information regarding the consumer's character, mode of living, or general reputation. See also inspection report.

investment-sensitive insurance
A general category of insurance products in which the death benefit and the cash value vary according to the insurer's investment earnings. In investment-sensitive insurance products, policyowners share a portion of the insurer's investment risk. The exact benefit amounts for these policies cannot be computed in advance, beyond any guaranteed minimums. The specific products that make up this category of insurance include variable annuities, variable life insurance, and variable universal life insurance. Also called interest-sensitive insurance.

investment year method (IYM)
An accounting method in which an insurer keeps records of the interest rates it earns annually on funds assigned each year to accounts within the general account. Also called the new money method. Compare to the portfolio method.

involuntary plan termination
The curtailment of a pension plan initiated by a government organization, such as the Pension Benefit Guaranty Corporation (PBGC) in the United States, rather than by the plan sponsor. Contrast with voluntary plan termination. See also distress termination and standard plan termination.

IPA
See individual practice association (IPA).

IRA
See individual retirement account (IRA).

irrevocable beneficiary
A beneficiary whose rights to the proceeds of a life insurance policy cannot be cancelled by the policyowner unless the beneficiary consents. See also beneficiary.

issuing bank
A mutual savings bank that sells and issues life insurance policies in its own name. Each issuing bank issues its own contracts, keeps its own records, and invests the assets of its own insurance department. See also agency bank and savings bank life insurance (SBLI).

Written by the Insurance Center

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